It was bad enough when Moody’s Investor Services placed America’s credit rating under review for a downgrade because our politicians can’t agree to raise the $14.3 trillion debt ceiling. Now Standard & Poor’s has taken an even tougher stance. It is putting U.S. debt on “Credit Watch negative,” with a 50 percent chance of a downgrade in the next three months if there is no long-term plan to cut the deficit. That would put an end to the triple-A rating accorded American debt since 1917. And Standard & Poor’s has privately told the president and lawmakers that if America defers any expected payments it will downgrade U.S. securities even if the Treasury continues to pay interest on the nation’s debt. This is in response to the president’s threat to continue such interest payments, but notify millions of pensioners that the national cupboard is bare and there will be no monthly checks until the problem is resolved. I am also told that Obama has warned farm-state senators that he will wreck their states’ economies by closing down food inspection facilities, thereby preventing the interstate shipment of many agricultural products. The president hails from Chicago, home of such hardball politics.
Yawn. The U.S. can still borrow long-term at a sub-3% interest rate, with even Bill Gross, boss of Pimco’s $244 billion total return fund, trading in his bear suit for bull horns. The reason: as Wall Street analysts have taken to putting it, “The U.S. is the best house in a bad neighborhood.” That’s not quite as good as “safe haven,” but sufficiently safe a neighborhood to make investors willing to dwell in it. Better here than in euroland, where Italy and Spain are now under threat from the bond vigilantes, and the recent bank stress tests are producing snorts of derision from analysts who say they are hardly at all stressful.
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